Recently, the U.S. stock market has experienced violent fluctuations, with the largest drop since September 2022 and the largest rebound since November 2022. Investors are closely watching: Has the 'adjustment' of the U.S. stock market ended? Has the market already hit bottom?

In this regard, JPMorgan's attitude is very cautious.

JPMorgan: Kolanovic's Redemption?

Marko Kolanovic, a high-energy theoretical physicist and former chief strategist at JPMorgan, warned in the months leading up to his departure that over-crowded momentum trading would eventually become disordered. The market turmoil of the past week may give him reason to quietly celebrate.

Kolanovic's former team, now led by Dubravko Lakos-Bujas, published a report on Thursday, commenting on stock rotation, the Japanese market and carry trade:

"The stock market is no longer a one-way rise, but is increasingly playing a two-way game around the downward risk of the economy, the timing of Federal Reserve policy, position crowding, overvaluation and growing election and geopolitical uncertainty. In the first half of the year, the market focused mainly on inflation trends, but the focus is now rapidly shifting towards growth risks...

We believe that the current market correction is mainly driven by concerns about slowing economic growth and the re-pricing of recession probabilities.

Lakos-Bujas believes that momentum factors are undergoing significant liquidation, leading to last week's global stock market crash. The team also warned that if a real growth panic occurred, it could trigger a massive shift of funds into defensive stocks, which would lead to "bigger trouble".

"In history, when the momentum factor completely reverses and closes out positions, it leads to a 30% drawdown... We have only completed about 34% of this drawdown so far.

However, we believe we have not reached the end of the cycle yet, so we expect momentum to only partially close out, rather than completely, although we are gradually approaching this goal.

Another view from JPMorgan's trading department is also somewhat cautious, listing arguments for and against the market having hit bottom. Among the reasons for support are:

1. Recent volatility may be only technical selling, with fundamental data not supporting such a large-scale fluctuation.

2. Macro and micro fundamentals are still solid, with optimistic GDP growth expectations and better-than-expected corporate earnings.

3. The correction is a normal phenomenon and conforms to historical laws.

The main reasons for opposition are as follows:

1. The Federal Reserve may delay interest rate cuts, leading to negative reactions in the bond market.

2. CTA still has more room for short selling.

3. Negative seasonal factors and geopolitical risks are intensifying.

As for whether the bottom has been reached or not? JPMorgan's trading department said in the report that from now on, the market trend may slightly increase, "but the market still needs to see evidence that the economy is still in growth mode."

Goldman Sachs: cautious but optimistic, believes that the market has hit bottom in the short term.

Although Goldman Sachs is also cautious, they are slightly optimistic and believe that the market has bottomed out in the short term.

"From here, the trend will be volatile but upward."

The S&P 500 index closed at a historic high on July 16, only a stone's throw from 5700 points... The VIX volatility index touched 65 on Monday, a situation that has only occurred twice before during the 2008 financial crisis and the March 2020 COVID-19 pandemic... We feel that the shocks we are experiencing will not disappear immediately, but we do not believe that anything terrible is brewing.

For a long time, buying into a 5% pullback in the S&P 500 index has proved to be a very wise strategy."

It is worth noting that unlike the high consumer price index (CPI) in the past two years, which caused the stock market to crash, the market now hopes that next week's inflation report will be slightly higher to avoid the economy falling into a deflationary spiral.

Overall, despite the market rebounding, major institutions remain cautious. Investors need to closely monitor future economic data and policy trends to determine if the market has truly bottomed out.

Editor/Emily